According to court documents filed Monday, plaintiffs and defendant PayPal have reached an agreement in principle on a proposed settlement. Three plaintiffs filed the lawsuit last year over the online payment service's customer service and handling of fraud complaints, particularly its practice of freezing customer accounts while investigating complaints.

Attorney Robert Finkel is a partner at Wolf Popper LLP, one of the law firms representing plaintiffs in the lawsuit. Finkel said a hearing for the plaintiff's motion for class certification was postponed until January 26, 2004 in order to give the parties time to continue negotiations.

The hearing had originally been scheduled for Monday, November 17. According to court documents, the parties in the suit have held a series of mediations under the auspices of the court-appointed Special Master, The Honorable Edward A. Infante. The parties have reached an agreement in principle on a proposed settlement, subject to reaching agreement on final settlement terms.

The case has already caused PayPal to change its user agreement after Judge Jeremy Fogel ruled last August that PayPal's mandatory arbitration policy was unfair to customers who complain their accounts are being mishandled.

Attorneys for PayPal did not return phone calls, and a PayPal spokesperson said she could not comment on pending litigation.

PayPal is a popular payment solution used by online auction users and by Web sites for collecting payments. eBay purchased PayPal in October 2002.